July 25, 2022

U.S., Canada Argue Mexico Is Not Complying With USMCA Energy Rules

Last week, the U.S. and Canadian governments requested consultations with Mexican officials under the dispute settlement chapter of the United States-Mexico-Canada Agreement (USMCA), arguing several of the Mexican government’s energy policies are inconsistent with the North American trading pact.

At issue are measures related to natural gas, electricity, and renewable energy technology and resources and whether they favor Mexican state-owned enterprises over U.S. companies and U.S.-produced energy.

Click here to read the U.S. government’s announcement and here to read the statement from the Canadian government.

“We have repeatedly expressed serious concerns about a series of changes in Mexico’s energy policies and their consistency with Mexico’s commitments under the USMCA,” said U.S. Trade Representative Katherine Tai. “We have tried to work constructively with the Mexican government to address these concerns, but, unfortunately, U.S. companies continue to face unfair treatment in Mexico.”

Since the parties have been unable to reach an agreement, the United States requested a formal process. Specifically, the Office of the U.S. Trade Representative said Mexico’s unfair actions “include, but are not limited to” the following:

  • Amendments to Mexico’s electricity law that would prioritize the distribution of power from Mexico’s state-owned utility over cleaner sources of energy like wind and solar that are provided by private sector suppliers;
  • Mexico’s delays, denials, and revocations of U.S. companies’ ability to operate in Mexico’s energy sector, including with regard to renewable energy projects;
  • Compliance with the maximum sulfur content requirements under Mexico’s applicable automotive diesel fuel standard; and
  • A June 2022 action that the United States and Canada allege favors the use of Mexican products in Mexico’s natural gas transportation network.

Under USMCA rules, the countries will enter into consultations within 30 days of the request for consultation, unless the parties decide otherwise. If they do not resolve the matter through consultations within 75 days, either the United States or Canada may request the establishment of a dispute panel.

According to Bloomberg, if the Mexican government loses the dispute, or if the countries do not come to a resolution, by the summer of 2023, products from Mexico could be hit with between $10 billion and $30 billion in tariffs. Mexico’s Deputy Economy Minister Luz Maria De la Mora told Reuters, “We want to take advantage of this consultation phase … to see how we can reach a mutually satisfactory solution through an open, frank and constructive dialogue, which will allow us to overcome these differences.”

Click here to read more in depth about this dispute.

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